Amazon Explains Why It Just Paid Nearly $1 Billion for Twitch

Amazon VP of games Michael Frazzini and Twitch CEO Emmett Shear talk about Monday's surprise high-price acquisition and what it means for the popular game-streaming service going forward.

The rumor mill got it wrong.

Twitch, an online service that lets people watch other people play video games, was supposed to go into the arms of Google. That was the received wisdom until late Monday afternoon anyway, when Amazon capsized expectations and announced it would pay $970 million for the fledgling company, an amount said to be less than what Google was offering (the rumor mill pegged that amount at around $1 billion, though never backed it up), but an enormous sum by any measure. It also the most Amazon’s paid for any company to date.

Why the heck would the world’s largest e-tailer–in the news more these days for its consumer electronics and apparent hopes to conquer time and space by deploying fleets of personalized delivery drones–buy a games-streaming startup? This is where knowing a little about Twitch helps.

These days everyone has big numbers, but this one’s genuinely impressive: Twitch says it had 55 million unique visitors to its site in July 2014 alone, and all of those visitors eyeballed over 15 billion minutes of games-related content. The number of people generating all that content? One million, says Twitch, comprising an audience of amateur and pro gamers, game publishers and studios, video game news sites and eSports-related events (eSports being the term gamers call video games played in professional matches). All sorts, in other words, from content creators and consumers to critics and video gaming “athletes.”

Here’s another way to look at it: the Wall Street Journalreported in February that Twitch accounted for nearly 2% of peak Internet traffic in the U.S., or fourth overall during peak hours. The only three companies that scored higher were Apple (4.3%), Google (22%) and Netflix (32%). Think about that for a minute: Twitch, a company that arrived in 2011, accounted for more peak U.S. traffic in February than Facebook.

But why Amazon of all companies? When I put the question to Twitch CEO Emmett Shear Monday night, he said it came down to two words: like minds.

“Talking to Mike [Frazzini, VP of Amazon Games] along the way, it really became clear that we have a shared vision for the gaming industry. We see the same trends in the same space,” said Shear. “And it’s also their culture. Amazon thinks about problems and solving those problems in the same way we do at Twitch. They think about how you can build things for customers, and how to do that in the long run.”

That sense of philosophical camaraderie over the course of multiple meetings culminated in formal negotiations, said Shear.

“One of the things I was really impressed by during the deal discussions was Amazon’s commitment to making Twitch a fully-owned subsidiary, which means I get to remain the CEO, we keep our office, we keep our culture, we keep our strategy,” said Shear. “But we get access to all of these resources and products that Amazon has that’ll let us do all of that better and faster.”

Amazon, for its part, looks less like an outlier and more like a natural home for a gaming-centric service like Twitch when you add up its recent moves. Where rivals like Apple and Google still hold gaming at arm’s length, building platforms and ecosystems to lure third party creators in lieu of crafting first-party content, Amazon’s been quietly cultivating its own gaming stable, edging step by step more toward the sort of holistic approach a Sony or Microsoft or Nintendo might take in securing ownership of both the hardware and software ends of the bargain.

When I asked Frazzini if Amazon paying beaucoup bucks for an enthusiast-angled video game operation is further evidence that Amazon intends to square off directly with gaming’s 800-pound gorillas, though, he was quick to couch the move as strictly consumer-driven.

“I was never, like, ‘How does this, that or the other company do it, and maybe we should,'” said Frazzini. “I’ve always thought about it in much simpler terms, through the lens of the customer experience and what we wanted to create, where we thought we could built inventive new experiences that would resonate. That’s been the driving motivation. If you look at Amazon fairly high-level, what you end up with is, we have a commerce business, and games are a very important part of the commerce business.”

Amazon loves people who buy games through Amazon, said Frazzini, because gamers tend to come back and buy all sorts of other things. But it’s also about more than consumers, he said, talking about the importance of catering to the sort of premium content developers the company’s been wooing with its cloud-focused Amazon Web Services model–which is just another way of saying Amazon’s Twitch purchase is (at least in part) about growing its gaming cred.

Consider Amazon’s two most recent games-related acquisitions: Amazon bought developer Double Helix Games in February, a studio known for the survival horror game Silent Hill: Homecoming as well as its work on a revitalized version of Killer Instinct, an arcade-style fighting game for Microsoft’s Xbox One. And in April, Amazon rolled out Fire TV, a $99 set-top box that not only plays high-fidelity games, but supports them with an optional gamepad–one a traditional console- or PC-gamer wouldn’t be embarrassed to wield.

“I think it’s fairly safe to say at this point that on anything with a screen, games are the number one or two activity,” said Frazzini. “Obviously if we’re going to be in the devices business, we have to be thinking hard about games. And at the center of that is the customer experience, which is what’s so interesting about Twitch for us. Twitch has that same point of view. They think long term. They think a lot about invention.”

Frazzini is naturally effusive when talking about Twitch’s accomplishments since the service’s debut in 2011, going on to call it “just the beginning” of a process that’s about anticipating “where games are going.” Clearly Amazon sees that destination as more than another overloaded app store or slew of iterative mobile devices. Put another way, no one spends close to $1 billion on a gaming service whose most vocal proponents identify as core gamers if they aren’t serious about wooing and winning them over.

The acquisition makes even more sense when you think about services like Amazon Instant Video. Amazon’s been in the video-on-demand business since 2006, and with its recent shift to an all-you-can-eat Amazon Prime streaming video model, whereby Prime members gain access to scads of video content (including the company’s coup-of-coups exclusive deal with HBO) for a Netflix-ian flat fee, capturing new eyeballs by adding a service like Twitch fits hand-in-glove with the company’s ostensible goals. And think of what else the purchase buys Amazon in terms of new eyeballs: Twitch is already an entrenched and critical presence on both Sony’s PlayStation 4 and Microsoft’s Xbox One.

And for those worried that Amazon’s purchase could somehow harm or curtail the house Twitch built, it’s not clear yet what the actual relationship between Amazon and Twitch will be, but Twitch’s Shear said the most immediate benefits (for Twitch, and thereby its user base) translate as exponentially greater scalability.

“This year we spent a huge amount of money growing our network footprint, and I hope that next year we can spend three times as much money or just leverage some of the network footprint Amazon already has,” said Shear. “Now we can move into locations Amazon already has servers. And that alone is super exciting to me.”

The Spoiler Lurking in Netflix’s Blockbuster Growth

Rather than crow about its strong quarter, the streaming-video giant tempered expectations for the remainder of the year. That should tell you something.

At first blush, Netflix reported what seemed like blockbuster results.

On Monday, the streaming video giant said its earnings had more than doubled, to $71 million or $1.15 a share in the recently ended second quarter. Even better, Netflix NETFLIX INC.NFLX-1.34% gained 570,000 new streaming subscribers in the U.S., despite hiking costs by $1 a month in May, moving the company past the 50 million-subscriber mark.

Yet rather than spending much time crowing about these results, Netflix officials used its quarterly earnings report to try to temper investors’ expectations for the coming quarter. Why?

Either second-quarter results weren’t that great after all — or the rest of the year will be much more challenging than expected.

It’s the latter.

A few months ago, Morningstar analyst Peter Wahlstrom made this key point:

“The market is too optimistic about Netflix’s future sales growth and profitability potential. We remain skeptical about Netflix’s aggressive international push; we recognize the addressable market is large but sustainable and material profitability will be much harder than management currently anticipates and may drag on cash flow for the foreseeable future.”

He was right to be worried. On Monday, Netflix provided a clue as to how difficult it will be to sustain profitability while making an aggressive international push.

In a letter to shareholders, CEO Reed Hastings and chief financial officer David Wells warned that the company’s international video streaming operations, whose “contribution losses” had been gradually declining lately, would jump from $15 million in the second quarter to $42 million in the third quarter.

Meanwhile, they lowered expectations for third quarter earnings, forecasting that they would come in around 89 cents a share, down from $1.15 in the second quarter and considerably lower than the expected $1.02 a share, according to consensus forecasts by analysts tracked by Zacks.com.

Company leaders also used their earnings release to again reiterate their calls for so-called net neutrality, hinting at another area of potential vulnerability. Backers of net neutrality want Internet Service Providers (ISPs) such as Verizon, Comcast, and AT&T to treat all data equally, without giving preferential treatment — and speed — to preferred customers.

Without such a system, companies like Netflix have had to address speed issues by entering into individual agreements with ISPs to stream their content more quickly. The problem, though, as MONEY’s Taylor Tepper recently pointed out, is that such deals give “Internet service providers leverage to assess more such ‘tolls’ down the road.”

Yesterday, in after-hours trading, Netflix shares jumped immediately after the company announced its earnings.

Comcast, AT&T Say They’re Not Big Enough Yet

Bloomberg—Bloomberg via Getty ImagesThe Comcast Corp. logo is seen as Brian Roberts, chairman and chief executive officer of Comcast Corp., right, speaks during a news conference at the National Cable and Telecommunications Association (NCTA) Cable Show in Washington, D.C., U.S., on Tuesday, June 11, 2013.

At a Senate hearing ahead of major merger melees

Two of the biggest players in the telecom industry faced off against a public interest group, a trade group and a satellite company at a Senate hearing Wednesday in a debate that will help set the stage for upcoming battles over the future of broadband, television and streaming video.

The hearing comes just as federal regulators are staffing up to review two mammoth mergers: One between Comcast and Time Warner Cable, and another between AT&T and DirecTV. To some degree, the hearing was only ceremonial: Congress won’t have any direct say over whether federal regulators approve or deny the mergers. But political winds in Washington can affect regulators’ moods, and the back-and-forth gave members of the Senate Committee on Commerce, Science and Transportation a chance to publicly speak their minds on the mergers.

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While the discussion at the hearing was unflaggingly respectful, it touched, just below the surface, on what has become a fiercely ideological war with regard to the future of TV, with each side presenting a vision incompatible with the other’s.

Comcast and AT&T argued that massive consolidation in the telecom industry is good for consumers, good for innovation, and good for the free market. They warned that if the government does not allow the mergers to go through, incumbent telecom companies would no longer be able to invest in basic Internet infrastructure, leaving consumers to pay more for fewer Internet and TV options.

Representatives from advocacy group Public Knowledge, a TV writer’s guild, and satellite TV company Dish made the opposite case. They said that recent consolidation in the telecom industry has been terrible for consumers, driven up prices and driven down the quality of customer service. They also said the lack of competition has squashed innovation and investment in broadband infrastructure.

At the center of the discussion was Americans’ shifting TV-viewing habits. When Americans want to watch TV, they’re increasingly bypassing traditional set-top boxes, instead opting for their smartphones, tablets, and laptops. Online video consumption grew by 71% in the U.S. between 2012 and 2013, according to Nielsen.

That trend has been the driving force behind skyrocketing broadband subscriptions—a major cash cow for cable companies and for telecom companies that offer services faster than DSL. AT&T’s revenue from its U-Verse high-speed broadband business was up 29% from last year according to a recent quarterly report, for example. Comcast, which already has more than 21 million broadband subscribers, says the broadband business is one of its fastest-growing offerings.

That so many Americans are streaming more video online has also made online TV and video content companies, like Netflix, YouTube and Vimeo, fundamentally dependent on telecom companies’ pipes to reach customers. Public Knowledge’s Gene Kimmelman argued that no online video streaming company can exist without going through broadband providers like AT&T and Comcast, whose services are necessary to deliver streaming content to consumers. That sets up a potential problem, as Comcast could be incentivized not to carry Netflix or YouTube content as quickly as its own video offerings (Comcast owns NBCUniversal, a major content production company).

“Everyone who wants to make the online video system works needs to make a deal with Comcast,” he said.

Also addressed during the hearing was many Americans’ frustration at having to pay large bills for pay-TV—bills that have risen faster than inflation—to receive hundreds of channels. The non-profit consumers rights group, Consumers Union, has said that at least two-thirds of pay-TV customers [PDF] would prefer to pay less for a handful of programs that they actually watch. The disconnect between these two methods—known as “bundling” versus “a al carte”—is at the heart of the future of online video.

“The younger generation doesn’t want to spend $120 for 500 channels,” said Jeffrey Blum, a senior vice president of Dish, the second-largest satellite company in the country after DirecTV. But fixing the problem, he said, requires going up against incumbent telecom companies, like Comcast, AT&T and Verizon, which rely on bundling to underwrite their pay TV services, and would lose out if most Americans simply cut their pay-TV bill and began streaming shows online. Popular networks like ESPN would also lose out; in the current system, the telecom companies pay them large fees to redistribute their content.

Still, Blum said, there is already “too much power in the hands of too few” in the broadband space. A combined Comcast-Time Warner Cable “will have the incentive and ability to stifle competition,” he said.

Both Cohen and AT&T’s senior executive VP John Stankey dismissed concerns about anticompetitive behavior. In previous testimony before Congress, Comcast’s executive VP David Cohen has said that the merger between Comcast and Time Warner Cable will not affect competition since the companies do not currently compete in any geographic region, and that Comcast has “only to gain” from more people streaming video online. The more demand there is for online video, “the more demand there is for our broadband service,” he said at a previous hearing.

In February, Comcast made a bid to buy Time Warner Cable for $45 billion; in May, AT&T’s bid for DirecTV was worth $48.5 billion. Neither deal has yet to pass regulatory muster.

Both Cohen and Stankey also reiterated their companies’ commitment to the Federal Communication Commission’s now-defunct rules on “net neutrality,” the notion that broadband providers treat all content that passes over their pipes equally. While both expressed their opposition to some public interest groups’ hopes that the telecom industry would be recategorized as a “Title II” industry, giving the FCC much more regulatory control over broadband, they said they supported the FCC’s newly proposed net neutrality rules.

Those rules have come under fire because they allow broadband companies to redirect some content to a “fast lane,” while relegating most content to a slower, regular lane. Cohen said that while he “didn’t understand” what “fast lanes and slow lanes” even were, he said it was a non-issue. “We don’t have any,” he said. “We don’t have any plans to develop any.”

How to Roll Your Own Aereo (Spoiler: It’s Not Cheap)

The secret to Aereo’s short-lived success was that you didn’t need to buy hardware to use it. You “rented” an antenna stored at one of Aereo’s facilities somewhere, and the company retransmitted the signal over the Internet to you, either in real time or you could remotely record shows to be transmitted later. The most expensive Aereo plan topped out at $12 a month.

So the spoiler, in case you missed it in the headline: rolling your own Aereo-like setup won’t exactly be cheap. It’s okay. You can click away to something else now. I understand.

If you’re still here, we’ll assume that you want some sort of solution that’ll not only let you record TV, but let you stream live TV to yourself on an array of devices. If you just want to use cord-cutting services — you don’t care about live TV, in other words — check out this post for some services to try. We’re also assuming you get a strong over-the-air signal where you live. You can bet Aereo’s antennae were nicely positioned to catch strong signals; the signals to my place in Boston, for instance, are weaker than a toddler trying to lift a car.

Newer TiVo + Add-on Streaming Box

TiVo wants your business, to be sure, though Zatz figures “cord cutters will need to front about $300 in hardware and $15/month to approximate Aereo.” That’s for a base-model TiVo Roamio box ($200 MSRP) — the only version to sport over-the-air antenna connections — and monthly service. You’ll also need to add TiVo’s streaming box ($130 MSRP), which only streams over a Wi-Fi connection and doesn’t yet sport an Android app.

Older TiVo + Slingbox

If you really want to stream it all, your best bet, according to Zatz, is a used TiVo Premiere box with lifetime service attached to it. That means trying your luck on eBay, basically (they seem to be going for north of $200). That’ll let you use an over-the-air antenna to record shows on the major networks for later. Then, for transmitting live and recorded TV over the Internet to yourself, Zatz says the Slingbox is “still the best game in town.” That means another $180 to $300 in hardware costs, plus paying extra for the Slingplayer mobile apps.

Tablo TV

Zatz also calls Tablo TV “One part Slingbox, one part DVR. Like rolling your own Aereo with a better UI and higher video quality, without those pesky regional restrictions.” The hardware runs between $219 and $289, with lifetime service running another $150 (you can pay $5 a month or $50 a year, too). You also need to supply your own hard drive, which could run a hundred bucks or more if you want to be able to store a lot of video.

Community Is Graduating to Yahoo. Can It Get Even Weirder?

Vivian Zink/NBCThe NBC version of Community, which will return on Yahoo in the fall.

The search-engine-turned-content-creator saves the cult sitcom, and gets the chance to show that streaming TV can do a network's job as well or better.

It skated on the edge of cancellation at NBC for five years, then finally fell off. It flirted with a resurrection deal with Hulu, then it fell through. But now, having promised “six seasons and a movie,” Community will be able to deliver at least the first half of that promise, thanks to Yahoo Screen, which you may not have known was a thing until now. Under the terms of the deal, Yahoo will make 13 episodes of the series, with creator Dan Harmon and the full remaining cast (not counting the departed Donald Glover and Chevy Chase). Which means we do not–per Abed’s warning at the end of season 5–have to assume that the story ended because an asteroid destroyed human civilization.

Should it have, though? Season 5 was not the show’s best, despite a handful of inspired episodes–but assuming Harmon had a vision that needed an extra year to complete it, I’m happy to find out. Yeah, I’m ambivalent about the idea that every show with a passionate audience can and should be kept alive, even past its peak, by Netflix (which is bringing back The Killing), or Yahoo, or, I don’t know, is HotBot still around? Sometimes you need to know when to say goodbye. But even a bad season 6 of Community won’t negate the greatness of the show’s past–and it could get very interesting.

The closest comparison seems to be the revival of Arrested Development on Netflix. There too, you had a wildly imaginative show with an impassioned creator who had bumped up against the restrictions of network TV. The Netflix fourth season of Arrested Development was an entirely different beast from what aired on Fox, and in some ways it suggested that the show was better with network limitations; the time limits of commercial TV, for instance, forced the Fox version of the show to create a dense, rapid-fire language of comedy, and the Netflix version sometimes felt slack and oddly paced. But the new version was rewarding in its own ways, and to its credit, it attempted to become a new kind of show for the new format.

There’s still a lot we don’t know about the Yahoo version of Community, though early reports indicate that it will be produced more like a network show than a Netflix one: Vulture’s Joe Adalian reports that the show will likely release episodes weekly, not all at once (and that the budget will be in line with a network budget). Still, Community has been the story of Harmon’s attempt to make a sitcom be as many things as he could make it be: a cartoon, an 8-bit videogame, a pop-culture parody, and a bittersweet character story. Theoretically, a Community produced online could become even more: if Harmon needs ten minutes more (or less) for a given episode, why couldn’t he have it? If Mitch Hurwitz could create an elaborate, experimental intersecting narrative without network-TV constraints, I can only imagine what Harmon will do with that toolbox–though I also wonder how he’ll deal with not having those constraints to define himself against.

And no one should assume by now that a revived Community on Yahoo will be a lesser, cheaper Community. We’ve seen from Netflix, Hulu and Amazon (whose Transparent may be the fall show I’m most excited about) that online outlets can make TV that’s as impressive as anything on the slightly-bigger screen. Yahoo, meanwhile, should have every reason to invest in a version of Community it can be proud of. It’s been trying for a while to establish itself as a force in online video–see its hiring of Katie Couric as its global anchor. In any case, it seems fitting that Harmon, who co-founded the indie-TV/short-film website and festival Channel 101, should be part of online TV’s bid for the big time.

I’m happy for Harmon and crew that they’ve kept their show alive, but I also hope they think of this less as the sixth season of Community and more as the first season of something new. One thing’s for sure: now that the sixth season has been assured, I’m not betting against the movie, even if it has to be made entirely in Abed’s Imaginarium.

Google’s latest smart TV platform, which replaces the disastrous Google TV, seems like a mash-up of its competitors, including Apple TV, Roku and Amazon Fire TV. It’s got apps like Netflix and Songza, a store for movies and TV shows and a selection of smaller-scale games to play. It’s yet another streaming video platform at a time when there’s no shortage of them.

It’s only when I looked a little closer that I started to grasp what Google is trying to do. Android TV is more ambitious than its simple interface lets on; the question is whether it can live up to its goals.

With Android TV, the idea is for users to spend less time thumbing through menus and more time being entertained. Instead of overwhelming users with options, the interface has just three parts: recommendations on top, apps in the middle and games on the bottom. When you use an app or play a game, it moves to the front of its respective section so it’s easier reach next time.

More importantly, the recommendations section fills up over time with suggestions from your favorite apps. If you watch a lot of YouTube, related clips will start to show up. If you buy a bunch of TV shows on Google Play, you’ll see more Google Play recommendations. If you have a television that runs Android TV and you watched Game of Thrones when it aired on HBO last week, Android TV can remind you to tune in for the next episode. There’s even an app for food delivery service Eat24, which can recommend meals you’ve ordered in the past.

Google sees these recommendations as the modern equivalent of flipping through a channel guide. The key is that every app is allowed to feed into Google TV’s recommendations system, so unlike the recommendations on other platforms, it’s not just a lazy, ham-fisted way to get you to buy more premium video.

Here’s the problem, though: Although Google wants all apps to feed into the recommendations section, they’re not required to do so, and there’s no guarantee that video providers will embrace what Google is trying to do. So while Netflix already has an app for Android TV, the recommendations section doesn’t show Netflix videos. That’s a huge loss for the whole concept, and if other major video providers follow the same path, Android TV won’t be all that unique. (For that matter, many big-name apps such as HBO Go, Hulu Plus, MLB.tv and WatchESPN weren’t part of the I/O demo at all, though it’s a little early to start fretting about app support.)

In a way, Android TV’s situation reminds me of Google TV, which had a lot of big ideas on how to unify content from cable and the web. Those ideas fell apart when video providers didn’t play along, blocking their content from Google TV outright.

The difference this time is that Android TV’s basic execution looks solid, so even if Google’s broader ambitions fall through, it still has a fast, simple TV platform for apps and games. And while that’s less interesting than a complete reinvention of the channel guide, it’s better than nothing.

The first Android TV set-top boxes are coming this fall, and televisions with Android TV built-in are coming from Sony, Sharp and TP Vision next year.

Steam In-Home Streaming Now Available, Lets You Play PC Games on Virtually Any Computer

Anyone with a Steam account can stream games from one PC to another running a completely different operating system, so long as it's on the same network.

Valve put its Steam In-Home Streaming program — a way to play Steam games between two computers on your home network — out for public beta just a few weeks ago, after running a private beta test for months.

Testing presumably went smoothly, because Valve’s announcing today that the feature is now available to anyone with a Steam account:

Players who have multiple computers at home can immediately take advantage of the new feature. When you login to Steam on two computers on the same network, they automatically connect, allowing you to remotely install, launch, and play games as though you were sitting at the remote PC.

The upsides of In-Home Streaming are really twofold: You can either stream content to something like your living room’s mongo-sized TV without dragging your PC around (or building a Steam Machine), or simply use a lower-end laptop running any number of operating systems, from Windows to OS X to SteamOS to Linux.

It’s also not a new concept: My colleague Jared Newman’s been streaming Steam games from his PC via Nvidia’s Shield for a while now. But Valve’s approach is more manifold, letting you mix and match existing or older devices without trading down to something the size of a handheld — a problem for PC games that don’t scale well on five-inch screens.

Valve’s put up an info page on the fledgling service here, with a handy info-graphic and step-by-step. Not that you really need the step-by-step. According to Valve, there’s just three: Log into Steam via Windows, log into another computer on the same network, then hit your library, select a game and fire away.

PlayStation 4 Owners Can Finally Try the PlayStation Now Beta Today

If you haven't received your private beta invite for the games streaming service, Sony's encouraging users to "register [their] interest" now.

Sony’s PlayStation Now — its upcoming games streaming service based on OnLive rival Gaikai’s streaming tech — has been in private beta for PlayStation 3 owners since January.

I’ll bet a lot of you didn’t know that. I’ll bet a lot of you thought it was a PlayStation 4 thing, because Sony’s made most of its noise about the service in the context of the PlayStation 4’s unveiling, and it’s made it a bullet point in all its PS4 presentations since. Strangely, the service hasn’t been publicly testable for the latter platform.

Until now. Sony says the private beta program is expanding to include the PlayStation 4 on May 20, which would be today. The catch: you have to register — or have registered — for the private beta here, after which Sony’s mystery-picker system does whatever it does before firing off voucher codes by email. That’s what you’re looking for to jump in. Sony’s asking would-be participants to “please be patient,” that it’s “inviting more Private Beta testers on a regular basis” and notes that it’s going to expand the PS3 private beta “to a broader audience” soon.

Last I heard, PS Now was due out of beta sometime later this year, but Sony writes on its PlayStation Blog that the service will launch “this summer.” I’d expect we’ll see it featured prominently at E3, then, since we’ve seen virtually nothing of it at media events to date. Sony says the first supported devices, as expected, will be the PS4, PS3, select Bravia TVs made in 2014 and the PS Vita, “with more devices down the road” (presumably referring to tablets and phones).

The reason PS Now’s availability on the PS4 may be especially significant is that Sony’s pitching it as a way to play PS3 games on the PS4 non-natively. The PS3 either suffered or benefitted — take your pick — from its lack of PS2 backward compatibility. The PS2, as you’ll recall, continued to hold sway with gamers for years after the PS3 arrived. The PS3, with more than 80 million units shipped worldwide, is probably going to see new games you can’t play on the PS4 showing up for a while yet: games like Dark Souls 2, Drakengard 3 (out today), Tales of Xillia 2 and post-release downloadable content for biggies like Batman: Arkham Origins and BioShock Infinite.

If you’re on the fence about registering, a few points to consider: Sony says you’ll need a “steady” broadband connection (very funny, Sony) with speeds of more than 5Mbps “highly recommended.” You’ll need a DualShock 3 PlayStation controller, of course (I’ve seen nothing about DualShock 4 support officially from Sony, though it hosts a support page advising how to configure the DualShock 4 to work with PS3 systems). And you’ll need a Sony Entertainment Network account, if you don’t already have one.

The deal may not be as imminent as that initial report suggested. While sources told The Verge that an acquisition is close, the Wall Street Journal reports that the negotiations are still in an early stage. As of Monday afternoon, Twitch and YouTube haven’t announced anything.

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Nonetheless, some in the gaming community are in panic mode at the thought of another beloved service being swallowed whole by a tech titan. We did, after all, just go through this with Facebook and Oculus VR. To help understand what the big deal is, let’s consider what we know about Twitch, YouTube and YouTube’s corporate masters at Google to figure out what an acquisition might mean:

What is Twitch?

Twitch lets anyone stream video games in real-time, with their own live commentary on top. It’s used for everything from huge gaming competitions (such as the yearly Evo fighting game tournament) to amateur broadcasts, some of which have become hugely popular. At first, broadcasters needed special video capture software to stream games from their PCs, but new apps for the Xbox One and PlayStation 4 make it easy to broadcast from those consoles directly.

In addition to the basic video feed and commentary, each stream has its own chat room, where users can comment on streams as they happen. The Twitch Plays Pokemon phenomenon from earlier this year made extensive use of this feature, allowing commenters to dictate every move in the game. Using Twitch isn’t just about watching other people play video games; it’s about hanging out with people around a set of common interests.

Why would Google/YouTube want that?

The problem with YouTube is that people tend to swing by for short video clips, and they have little patience for ads. As the Wall Street Journal points out, Twitch users will watch videos for hours on end, which means plenty of opportunities to advertise, and at premium rates.

Perhaps more importantly, Twitch may be the closest thing YouTube has to a threat. Google buying Twitch would be kind of like Facebook buying Snapchat (which almost happened) or Instagram (which did happen). Even if they aren’t direct competitors, they are competing for the same audience attention and ad dollars.

Would Twitch get shoehorned into Google+, then?

Probably not. If recent rumors are accurate, Google has realized the error of trying to ram its own social network into every product, like it did with YouTube last year. By that logic, Google should be smart enough to leave the Twitch community alone.

But that doesn’t mean Google wouldn’t be interested in tracking Twitch users for advertising purposes. Some sort of optional Google-based sign-in or account link would be a safe bet if this acquisition went through. (Here’s a hypothetical: Sign in with your Google account during Evo and get the HD stream for free, instead of having to buy a $12 ticket.)

Would the Google-Microsoft rivalry spell doom for Twitch’s Xbox apps?

Again, probably not. Google only skips platforms when it thinks they’re too small to invest in, which is why there are no official YouTube apps for Windows 8 or Windows Phone. But there are YouTube apps for Xbox 360 and Xbox One, which means Google thinks Microsoft’s consoles are large enough not to ignore.

Just don’t expect an official Twitch app for Windows Phone anytime soon (although the unofficial LiveGaming app is pretty good.)

What’s the potential upside?

As in any acquisition by a big tech company, additional resources are the most obvious benefit. Twitch could tap into Google’s massive data centers to keep things running smoothly, and could make a bigger effort to improve its mobile apps. Chromecast support, with the ability to chat through your phone or tablet while watching a stream on TV, could be pretty awesome. An acquisition by Google could put mobile game streaming on the fast track, especially for Android.

And the downsides?

Twitch’s dominant position in live game streaming would be firmly established, and YouTube would have even less competition than it does now. If the combined companies make a bone-headed decision–requiring everyone to use a real name, for instance–you’d have nowhere else to go. And in a way, it’s just sad to see that the endgame for another small but fast-growing company is to get bought by a huge corporation.

The potential acquisition also raises some questions: How would game publishers respond? Could this be the start of a copyright mess, as publishers try to get their pound of flesh from Google? Would Twitch eventually try to move beyond games to other forms of entertainment, and would that end up watering down the gaming aspect?

If there’s one thing we can count on, it’s that Twitch would follow the usual pattern of major tech acquisitions, and promise that it won’t be royally messed up by its new overlords. But it doesn’t always work that way. All Twitch users can do right now is wait, and hope for the best.

Here’s How Much Netflix Will Make from Its Price Hike

Netflix raised the price for its most popular streaming package by $1 in the United States, the first rate increase in several years. Though the service risks a customer backlash, it stands to gain millions from the pricing change

Today Netflix raised the price for its most popular streaming package by $1 in the United States, the first rate increase in several years. The move is risky for the company, which faced widespread customer backlash the last time it tried to force a price hike onto customers. But Netflix is facing soaring costs as it pays more to license content from TV studios and television networks while also inking deals to shore up its own slate of original programming. There’s no way for the company to remain profitable in the long term while keeping prices so low.

This time around, Netflix is being more careful with its pricing, offering current customers a two-year reprieve from the price hike. Despite this generous grandfathering, Netflix will be making millions more in revenue almost immediately. A dollar may not seem like much, but that’s a 12.5 percent increase in price in the sector that now comprises 84 percent of Netflix’s total sales (a few people still pay for DVDs by mail in 2014).

Let’s break down just how much extra money Netflix will make on the price hike before any of the service’s current paying members are hit with the increase.

For this analysis to work, we’ll have to make some projections about Netflix’s user growth over the next two years. CEO Reed Hastings has said that he thinks Netflix can get between 60 and 90 million subscribers in the U.S., a huge jump from the 36 million people that now pay for the service. Let’s assume Hastings is right and Netflix keeps adding new members at the torrid pace it’s managed in the last year. Mixing recent Netflix growth and the company’s own projections for Q2 2014, we’ll use these as benchmarks for the company’s quarterly growth, which is highly seasonal:

Q1: 2.67 million new U.S. subscribers

Q2: 0.65 million

Q3: 1.3 million

Q4: 1.79 million

Netflix will of course make the most money from people that sign up today and pay the extra $1 per month for the next two years. It’ll make less from those who subscribe later, and it won’t get an extra dime from me until May 2016, when we old Netflix subscribers can no longer lord our cheaper rates over newer members. If we assume that Netflix members are added on a fairly even monthly basis within each quarter, we can project that people who sign up for Netflix tomorrow will pay $24 more over the next two years than older subscribers. People who sign up in June will pay $23 more. And so on and so forth. Here are some examples of the math:

May 2014: 216,667 new members x $24 in extra fees = $5.2 million more for Netflix

June: 216,667 x 23 = $4.983 million

July: 433,333 x 22 = $9.53 million

August: 433,333 x 21 = $9.10 million

In total, Netflix will generate $148 million in extra revenue from U.S. subscribers alone by inching the price up by $1 for new members. This, of course, is a rough estimate. Netflix could either beat or trail its past performance, and it’s possible some people will opt for the company’s new standard-definition offering, which costs $7.99 per month. I won’t hazard to guess how much it’ll earn from international customers because the price hike varies by country, and Netflix is planning to enter large markets like Germany and France soon. But the company added two million paying international subscribers in the last quarter, a new record. There’s no doubt the price hike will be lucrative abroad, too.

Of course, the real payday comes in May 2016, when older members get hit with the price hike, generating a quick $34.48 million from current U.S. subscribers (assuming they stick around) and $414 million more annually from this large cohort. That will be good timing for some extra funding: Netflix has to pay $3.3 billion in streaming content acquisition costs between 2015 and 2017, according to an SEC filing.

Bask in your glory while you can, OG subscribers. The newbies are going to bring in enough cash to fund another House of Cards.